Part One managing operations and
Producing goods and services 20131204 9:05 PM
• Service operations: production activities that yield intangible services
• Goods production: production activities that yield tangible products
What does production mean today?
Production means making physical goods and services
The growth of global operations. Contamination.
Creating value throuhg production
Products provide business with economic results (profie/wage/goods purchased from others), and non
economic result (new technology/innovation/pollution).
Operations (production) management: systematic direction and control of processes that transform
resources into finished goods and services.
Production managers: managers responsible for ensuring that operations processes create value and
Farmers are production manager because they convert soil into tobacco and employ workers.
Production manager: resource+transformaiton activites + products of services
Operations processes: a set of methods/technologies used in produciton of good/service
Transfmoration technology: require combine resource/break resource.
Customer contact: service.
Goods producing processes. All goods are classified by: 1) type of transformation technology they
transform raw material into finished goods. 2) analytic/synthetic nature of transformation process.
1) types of transformaiton technology: turn raw materials into good
chemical process; raw material chemically altered. E.g al, steel, fertilizer
fabrication process: mechanically alter shape of product. E.g woodworking/textile industry assembly process: put together component. E.g electronic/appliance
transport process: moving goods. E.g moving truck
clerical process: transform information. E.g combing data/ machine breakdown into a report
2) analytic VS synthetic process.
Analytic process: production process in which resources are broken down. E.g extracting ore
Synthetic process: production process in which resource combined. E.g fertilizer or paint.
Serviceproducing processes. Customer contact: when service is provided without customer being part of
High contact system: system where service can’t be provided without customer being physically in system.
Low contact processes: system where service can be provided withotu customer being physically there. E.g
lawn care service/car repair/bank
Differences between service and manufacturing operations.
Service and manufacture operation transform raw into goods.
Service: not glass/steel: people who choose and if customer needs met
Focus on performance.
1)process and outcome
transformation process and outcome. E.g pipe person fixes pipe and calms person down.
2) focus on service characteristics: intanbility, customization, unstorability
intangibility: customer satisfaction with service hair cut.
Customization: the service each person gets personally. The differnet hair cut you need
Unstorability: service that cannot be produced ahead of time. House cleaning/transportation/childcare.
Focus on customerservice link. Hours of operation, available service, number of employee to meet
Focus on service quality considerations. Operations planning.
Forecast: estimates of future demand for new/existing products.
Main elements of operation palanning: capacity, location, layout, quality, methods planning
1. Capacity planning
Capacity: the amount of goods that a firm can produce under normal working condition. Number of
employee, and size of facilities.
Capacity planning for producing goods.
Capacity planning for producing services. in low contact process, managers set capacity at average
demand. E.g one person deals with 10 people. High contact process: manager make peak demand
capacity: more cashier in supermarket in weekend.
2. location planning
location planning for producing goods. Location decision influnce by: proximity of raw
material/market, availabile labour, energy/transportation cost, local/provincial regulation/tax,
community living condition.
Location planning for producing services. low contact service: service can be near resource
supplies, labour, customers, transportation outlet. High contact services: locate near customers
who are part of system.e.g mcdonald moving into hospital/shopping malls.
3. Layout planning:supplies, company respond to customer, if match competitors
Layout planning for producing goods: 3 types
i. Productive facilities: workstations/equipment for transforming raw material
ii. Non productive facilities: storage and maintanence area
iii. Support facilities: office, restroom, café.
Other layouts: process, celluar, product layouts
i. Process layout: organizing production activities such that equipment/people are grouped
together by function. E.g one part for sawing wood, one part for painting
ii. Cellular layout: used to produce goods when products can follow similar flow paths.
Designing pockets. They are all packaged the same. Advantage: similar products means
less machine adjustment, equipment set up, flow distance shorter, more order.
iii. Product layout: way of organizing production activites such that equipments and people
set up to produce only one type of good. Assembly line: product layout where particall
finished product moves through plant or other equipment. E.g automobile, TV.
Advantage: simple tasks for unskilled worker. Disadvantage: heavy investiment on
equipment, bored worker, absence of one worker can stop process.
Layout planning for producing services.
i. Low contact system: mail system: product layout. Photocopy: process layout. ii. High contact system. Cate: layout and service.
Methods improvement: operation system that reduce waste, inefficiency, poor performance.
Methods improvemnet in goods.
Process flow chart: identifies sequence of production acitivy, movment mateirial, work performance.
Methods improvement in services.
Service flow analysis: analysis that shows the process fows that are necessary to provide service to
customers; allows manager to determine which processes are necessary.
Designing to control employee discretion in services. mcdonald ready made burger
Design for customer contact in services: in high contact service: exchange money/information=clear out
customer contact. E.g dentist always clean after patient to prevent transmission.
Operations scheduling: timetable for acquiring resource for production
Scheduling goods operations.
Master production schedule: schedule showing which products will be produce, when production occurs,
what resource needed.
Scheduling service operations
Low contact service: appoitnments. First come, first servce
High contact service: emergency hospital, not even appointment will help.
Tools for scheduing: for rennovation/relocating
Gantt chart: production schedule diagram the step and time of project.bar chart. Used for delayed
Pert chart: program evaluation and review technique: production scheule specify sequence and step. Star
chart. 1234. Start to end.
Operational control: managers monitor production performance by comparing results with plan and
Follow up: checking to see production decision done. Operational control include: materials managemnet/production process control. Both ensure schedule are
met and production done.
Materials management: planning, organizing, controlling flow of materials from purchase through
distribution of goods. Plans flow of materials. Logistic.
Standardization: using standar/uniform component in production process ▯ material management. E.g law
firms file between contracts, agreement, wills.
4 area in material management.
1. Transportation: means of tranpsorting resource to company and finished goods to buyer
2. Warehousing: storage of incoming materials for production and finished goods for physical distribution to
3. inventory control: receiving storing, handling, counting all raw materials. Ensure material inventories meet
4. Purchasing; acquisition of all raw material/service that company needs ot produce products.
Forward buying: bought many mateirlas for long term need to bring discount.
Holding costs: costs of keeping extra supplies on hand. E.g real costs of storage, handling, insurance,
opportunity costearning company needs to give up because they don’t have the supply.
Hands to mouth pattern: placing small order frequently. Lead time= in purchasing conrol, gap between
customer’s placement of order and seller’s shipment or product.
Supplier selection: finding and determining suppliers to buy from. 4 stages
1. Investigae possible suppliers
2. Evaluate/isolate best candidate
3. Negotiate terms of service
4. Maintain positive buyerseller relationship.
Tools for operations process control.
Controlling operations: worker training, just in time production system, material requirment planning, quality
Worker training: human resource, good customer service.
Just in time production system: JIT: method of inventory control in which materials acquired/put into
production jst as they need it. E.g mount sinai does not store equipment: when it needs it , it orders
everyday. Disadvantage: more rush.
Advantage:save money. Increasing productivity and quality 20131204 9:05 PM
The productivityquality connection
Productivity: measure of efficiency that compares how much is produced with resource used to produce it.
Quality: product’s fitness for use in terms of offering the features that consumers want
Responding to productivity challenge.
4 factors of productivity; customers, quality, proudctivity, profit
labour productivity: partial productivity raio calculated by dividing gross domestic product by total numbers
of worker. Compare country’s total output goods with resource output.
Productivity among global competitors
Factors on why nations have different productivity: tecnologies, human skills, economic policies, natural
Domestic productivity: high productivity shared among workers, investor, customer. Low productivity when
decrease wage, decrease profit for invester, increase prices for customer.
Manufacturing VS service productivty. Manufacturing productivity higher than service productivity. Machine
replacing people. –computer mimic orchestra during performance.
Industriy productivity. Continuous castingwhere you don’t’ have to wait until the steel is cooled, you can still
work on it while its hot
Company productivity. High productivity=low cost=pay higher wage with worker=help buyer/seller stock for
Total quality management
Fishbone/ causeeffct diagram/ ishikawa diagram that helps employee investigate and track down cuases of
quality problem in work area.
Managing for quality
Total quality mangement: concept that emphasize that no defects are tolerable and that all employees are
responsible for maintaining quality standards.= quality assurance. Make high quality stuff!
TQM strategic approach; leadership. Customer focus, inmpovement product, after sale service, internal
Planning for quality
Performance quality; overall quality; how well features of a product meet consumers need and how well
product perform Increasing productivity and quality 20131204 9:05 PM
Quality reliability: consistency of quality of product.
Organizing for quality.
Leading for quality.
Quality owndership: concept that quality belongs to each employee who creates or destroys it in producing
a good/service; idea that all workers must take responsibility for quality product.
Controlling for quality. –review works of employee
Business process reengineering: redesigning of business processes to improve performance, quality,
productivity. Re engineering helps improve measure of performance such as cost, quality, service, speed.
The reengineering process. 6 steps
1. Statements of benefits for customer and company
2. Identify business activity that will be changed
3. Evaluate information. Human resource to see if requirements can be met for change
4. Diagnose current process to identify its strengths and weaknesses
5. Create the new process design.
6. Implement new design.
Adding value through supply chains
Supply chain: flow of information, material, service that starts with raw material suppliers and continue
through other state in operations process until product reaches customer. Raw materials▯change▯product
The supply chain strategy. Based on idea that members of chain worker together to gain advantage.
Provide high quality in low price.
Supply chaing management: principle for looking at the chain as a whole to improve overall flow through
system. E.g Dell computer allows people to share informaiton with supplier through internet.
Re engineering supply chains for better result. By lowering cost, speed up service, coordinate flow of
information, process improvmenet, improve chain supply. Managing informaiton systems and
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Information management: an overview
Information manager: manager responsible for activites needed to generate, analyze, disseminate
information that a compnay needs to make good decisions
Information management; internal operation that arranges the firm’s information resources to support
business performance and outcomes.
Data VS informaiton
Data: raw facts/ figures
Information: meaningful, useful interpretation of data.
Information systems: organized method of transforming data into information that can be used for decision
IS managers: gather data▯apply technolgoy to convert data into info▯ control flow of info so only people
who need info gets info.
New business technologies in the information age.
Informaiton system assist in scheuling day to day vehicle trip, innovative relationship with organization, new
managemnet process, new organizational design, faster technology
The exxpanding scope of information system.
Organizational system: business strategy, operating rules, business proccesses
Information system: hardware, database, software, eople, control, telecommunications. Both organization,
informaiton system are related.
Electronic business and communications technologies.
Electronic information technologies: EIT are Information system applications for telecommunications
Function of EIT: provide coordination/communication within firm. Speed up transaction with other firm
Six most innovations:
fax machinemachine that quickly transmite copy of document over telephone lones.
Voicemailreceiv telephone call on computer.
Email: allow people to communicate from computer.
Electronic confercing: people to communicate from different clocations, video ) data conferncing/
videoconferencing.) . Managing informaiton systems and
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groupware: software that connect members for email distribution, electronic meeting, storing.
Digital information services: online information
Data communication network: carry streams of digital dataelectronic message, documment) through
telecommunication system. E.g:
Internet: networks that offer information on business, science, government.
ISP internet service provider: commercial firms that sells connection to subscriber thorugh internet.
World wide web: universal system for storing/displaying/retrieving information. Homepage. Aircanada.ca
shows canada ariplane flight
Web servers: dedicated worksatations of large computers for support website. Browser: software that
enable user to access information on web. Directories: help people find content on webyahoo. Search
engines: searching webpages that does not preclassify to directory e.g just one word search.
Intranet; company’s private network accessible for employees only through a firewall.. Firewall: hardware
and software security system that ensure internal computer not accessible for outsider.
Extranet: network that allows outsider access to firm’s internal informaiton. E.g seeing online for supplies.
New options for organizational design: the networked enterprise.
Leaner organizations. E.g 24 hour information system. Don’t need bank tellers.
More flexible operations. Mass customization: producing many products but giving customers the choice of
features they want.
Network and virtual company. Collaborate with network system. Exhchange ideas.
Greater independence of company and workplace. Use internet to buy things from different location
Improved management processes.
Enterprise resource planning ERP: large information system for integrating all activity of company’s
business unit. One large database. Check for materials ordering, packasing, scheduling.
Types of information system
User groups and system requirements.
4 type of user groups. Knowledge workers: employees whose job involved use of information/knowledge as
raw materials of their work. E.g specialist to design new product.
Managers at different levels. Managing informaiton systems and
(not tested) 20131204 9:05 PM
Top level managerstrategic informaiton system=economy.
mid level manager: management ISset long goals
knowledge woker: knowledge IS=technological project
first level manager: operational IS.oversee
functional areas and business process. each business functions: marketing, human resource, accounting,
Major systems by level.
Transaction processing system TPS: application of information processing for basic day to day business
transaction.customer order, shipment, first level management. E.g POS lol.
System for knowledge workers and office applications. It support activity of knowleddge worker and clerical
IS knowledge worker: system analysist and application programmers
Systems analysts and designers deal with entire computer system. IS design system and decide type of
computer/links to use
System/application programmer: write software instruction.
Operations personnel/data workers. System operationals personnel: people who run at company’s
Knowledge level and office system.
System applications used to reduct product design time, reduce production cycle time, make faster delivery
Computer aided design: CAD: computer analyssi and graphic programs that are used to create new
products. 3D graphic. Rapid prototype: creates prototype
Computer aided manufacturing CAM: computer system used to design and control all equipment and tools
for producing goods. Computer operations control: system for managing day to day production activites. E.g
hospitals use it for patien’t meal.
Management informaiton system.: MIS: systems that support an organization’s managers by proivding dialy
reports, schedule, plan. Middle management use management informaiton system.
Decision support system: DSS: computer system used to help managers consider alternatives when
making decisions on complicated problems. Middle and top level managers use this.
Executive support system: ESS: quick reference application of IS design for upper level managesr.
Artificial intelligence and expert system.
Artificial intelligence AI: construction/program of computers to imitate human thought process. Managing informaiton systems and
(not tested) 20131204 9:05 PM
Robotic: use of computercontrolled machine to perform production tast.
Expert system: form of artificial intelligence in which program draws on rules expert laid aout to solve
Elements of the information system
Computer network: form of computer system in which computers are differnet location but function
independently and exchange information. Computer network has 6 parts: hardware, software, control,
database, people, telecommunciations.
1. Hardware: physical component of computer
a. To get data, input device: hardware that gets date into computer in a form computer can
understand. Ex. DCD drive. CPU: central processing unit: hardware in which actual
transforming of data into information takes place; contains primary storage unit and control unit
and arithmetic logic unit.
b. Main memory: part of computer’s CPU that stores programs.
c. Program: sequnce of instruction to a computer
d. Output device: part of hardware that present reults to user. E.g printer, speaker.
2. Software: programs that instruct computer what to do and how to do it.
a. System program: tell computer what resources to use and how to use them. E.g transfer first
to secondary storage.
b. Application program: program that process data according to user’s needs. E.g word
c. Graphic user interface: GUI: user friendly display that helps user select among many possible
applications of computer. Icon.
3. Control. Guidelines for operating system.survellience of employee as they work.
4. Database and pplication program.
a. Data and databases: centralized collection of related data.
b. Application program: 4 types of application . 70% are in the first three: word processing,
spreadsheet, database mangement.
i. Word processing program: application program used as typewriter.
ii. Spreadsheets. Electronic spreadsheet: application program sed to catoegorize data.
iii. Database management: application programs that keep track of and manipulate relevant
data of business.
iv. Graphics: computer graphics programs application convert number data into picture. Managing informaiton systems and
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1. Presentational graphics software: application program that offer choices of
visual, slide, video presentation.
2. Desktop publishing: combine word processing/graphic.
3. Sofware piracy: unauthorized use of software such as wordprocessing.
Telecommunications and networkk
Network: organizing telecommunications component into effective system.
Multimedia communication system: connected network of communication: fax, TV, cellphone, printer, linked
by satellite with other remote networks.
Communication devices. Used across distance and be able to communicate. Eg. Gps.
Communication channgels: wired/wireless transmission. Fax data. Satellite.
Broadband channels: ADSL connections can carry many signal=sound, visual, data.
System architecture. To classify networks: 2 ways: geographic scope & pattern of connections.
Local and wide area netword.
WAN wide area network; system to link computers across ountry through telephoen wires/satellite
LAN: local area network: system to link computers in one buildling by wireless technology. –one computer
system with one databaes
Wireless network; cellphones.
Client service system; network of both clients and servers to allow client access to services without
duplication. Client: point of entry in clientserver network. Server; compouter that provides service
shared by network user. File server, print server, fax server. 1. Understanding Accounting Issues 20131204 9:05 PM
What is accounting and who uses it?
Accounting a comprehensive system for collecting, analyzing, communicatin financial information.
Bookkeeping recording accounting transaction: one phase of accounting.
AIS: accounting infromation system: organized procedure for identifying, mreasuring, recording, retaining
financial information so that it can be used in accounting statement and management reports. E.g:
Subiness managers use AIS for setting goals, develop plan, set budgent
Employees and union use AIS to get paid, plan for benefits such as health care
Investor & credators use AIS for estimating returns on stockholders, determine company’s growth and
checking good credits before lending
Taxing authroires use AIS to plan tax inflow, determine tax liabilities to ensure correct amount are paid.
Government regulatory agencies rely on accounting information to fulfill duties.
Who are accounts and what do they do?
Head of AIS is controller: individual who managers all of firm’s accounting activites. There are 2 main
accounting field: financial and managerial
Financial and managerial accounting.
Financial accounting system: process where interested groups are kept information about financial
condiditon of firm. The company as a whole. Not invididual department. Historical report that summarize
financial transaction that occurred in past.
Managerial accounting: internal procedures that alert managers to problem and aid in decision making.
Reports serve company’s individual unit; department, project. Projections and forecasts: financial data to
look forward, not historical.
Chartered accountants: CA: individual who act as outside account for other firms. Ca focus on external
financial report. 70,000CA in canada
Certified general accountants; CGA: individual work for private industrial/CGA firm. External financial
reporting, and use computer for management accounting tool. 41000 CGA in canada
Certified maangement accountant: CMA: individual work in industry and focus on internal management
accounting such as analyyzing financial/nonfinancial info to help organization maintain competitive
advantage. 37000 CMA in canada.
CA&CGA for accountng services for client such as auditing, tax service, managemnet service
Auditing: accountant’s examination of company’s financial record to determine if it used proper procedures
to prepare financial report. E.g use receitp /check inventory . 1. Understanding Accounting Issues 20131204 9:05 PM
Forensic accountant: accountant who track down hidden funds/ criminal investigator. Detecting fraud.
Generally accepted accounting principles GAAP: standard rules that methods used by accounting in
preparing financial report.
Tax services: helping client prepare tax return and tax planning.
Management consulting services: speacilzed accounting services to help managers resolve problems in
finance, production scheudling, other areas. E.g executive recruitment, market study, production
scheudling, computer study, desigh. In this engineer, matheaticians acan be part of staff of accounting firm.
Private accountants: account hired as salaried employee to deal with company’s day t day accounting
Tools of accounting trade.
2 key concept of keeping records in accounting: accounting equation and double entry bookkeeping
the accounting equation: asset=liabilities + owner’s equity.
Asset: anythign of economic value owned by firm/individual. E.g land, buildling, equipment. Liability: debt
htat firm owes outside party.
Owner’s equity: positive difference between firm asset and liabilite. What remains if company were
liquidated and all asset sold, and debts paid. ; asset libailities=owners’equity.
Positive owners’ equity: company goes out of business, owner sell asset, pay off liability, receive some cash
as a gain. Negative owners’ equity: compnay goes out of business, asset cannot pay off debt.
Owner’s equity has 2 capital: amount owner orignailly invested & profits earned by and reinvested in
Double entry accounting system: book keeping system developed that requires every trnsaction to be
entered in two ways: how it affects assets and how it affects liabilities and owner’s equityso that accounting
equation is always in balance.
E.g increase invetory, decrease cash. Increase supply increase account payable. Invest mone increase
compnay cash increase owners’equity. Every transaction affects two accounts
Financial statement: broad reports regarding company’s financial status; most often used in balance sheet,
income statemnet, cash flow.
3 types of financial statement: balance sheet, income statement, statement of cashflow.
How balance sheet, income statement, cash flow, budgt, internal fincncial statement relates.
1. Balance sheet: financial statement that summarizes firm’s financial position for particular date in term of
asset, liabilities, owners’ equity. =statements of financial position
a. Assets: 3 type of asset
i. Current asset: cash and other asset converted in cash within a year.
1. Lliquidity: ease/speed in which asset can be converted in cash. 1. Understanding Accounting Issues 20131204 9:05 PM
2. Marketable securities purchased in short term investement are less liquid. E.g
bonds/stocks. Other nonliquid include: 1)accounts receivable: amounts due to
the firm from customer who have purchased goods/services on cret. It is a
form of current assetless allowance of coutful accounts. 2. Merchandise
inventory: cost of merchandise that has been acquired for sale to customer but
still on hand. 3. Prepaid expenses: supplies on hand and rent paid for period
ii. Fixed assetsland,buildling assets with long term use.
1. Deprecation: distributing cost of major asset over years in which it produces
revenues; calculating by each year subtracting assets orgiincal value divided
by number of years in productive life.
iii. Intangible assets: non physical assets such as patents, trademarks, copyrights, franchise
fee that have economic value bu whose prcise value is difficult to calculate. Good will:
amount paid by existing business beyond the value of its other assets.
i. Current liabilities: debts that must be paid withine one year. Includes accounts apayable:
unpaid bills to suppliers for materials and wages and taxes
ii. Long term liabilities: debts owed by firm that are not due for at least one year.
c. Owners’ equity.
i. Stated capital, paid in capital, retained earnings.
ii. Paid in capital : additional money invested in firm by ownder
iii. Retained earning: company’s net profits less any dividened payment to shareholder.
2. Income statements: profit and loss statement: type of financial statemnet that describes a firm’s
revenues and expenses and indicates whether the firm has earned profit of loss.
a. Revenue expenses= profit or loss.
b. 3 types of major income statement: revenue, cost of good sold, operating expenses
i. revenue; money received by firm from selling goods/service/other sourceinterest, rent,
ii. Cost of good sold: expenses directly involved in producing/selling good during a given
1. Gross profit/gross margin: firm’s revenues(gross sales) less its cost of good
sold. Goods sold – revenue from goods sold=gross profit. Low gross margin,
product cost are high. High gross margin, low cost of goods sold but high
selling expenses 1. Understanding Accounting Issues 20131204 9:05 PM
iii. Operating expenses: costs incurred by a firm other than those included in cost of goods
sold. Selling expenses result from acitiveities related to selling firm’s good such as
salaries , delivery cost, advertising expsnese.
1. Operating income: compares gross profit from business operations against
operating expenses. Net income/net profit/net earning: firms gross profit –
operating expsnese—income taxes
3. Statemnet of cash flow: financial statement that describes firm’s generation and use of cash durign a
given period. 3 cash activities
a. 1. Cash flows form operations; firm’s main operating activites of selling /buying goods
b. cashflows form investing; net cash used in/provided by investing. Bonds, equipment
c. cash flow from financing; net cash from all financing activities; cash inflow form
borrowing/issuing stock/ outflow of payment of dividends/ repaying borrowed money.
d. The main use of cash flow: for credators/stockholder know how firms obtain and use their funds
and year to year changes in firm’s balance sheet/income statemnet
The budget: an internal financial statement. Budget: detailed financial plan for estimated receipts and
expendictures for period of time in the future (one year).
Analyzing financial statmenets.
Statements turn into data into ratios
Solvency ratio: ratio that estimate financial risk is evident to company
Profitability ratio: measuring potential earning; likely profits used by investors to asses their returns.
Short term solvency ratio
Liquidity ratio: measuresfirms ability to meet immediate debt and used to analyze risk of investing in firm.
Current ratio: form of liquidity ratio calculated as current assets divided by current liability. =bank ratio. 2:1
higher means good. They are able to pay bills. Current asset/current liabilities
Working capital: differnece between firm’s current assset and firm’s liabilites. Indicate firms ability to pay off
Long term solvency ratios
Debt to owners’ equity ratio.
Debt ratios: measure of a firm’s ability to meet its long term debts; used to analyze risk of investing in the
Debt to owners equity ratio: form of debt ratio calculated as total liabilites divided by owners equity.
Debt/owner’ equity. If deb to owners equity ratio is around 1 means they are relying oto much on
Debt: company’s total liabilites. 1. Understanding Accounting Issues 20131204 9:05 PM
Leverage: using borrowed funds to make purchases, increaseing user’s purchasing power, potential rate of
return, risk of loss.
Purchasing company allows buying company to earn profit=may raid buyers debt to equity ratio=problem:
actual profit fall short and risign rates increase interest payment on debt.
Profitability ratios. 2 profitability ratio: return on equity & earnings per share.
Return on equity: form of profitability ratio calculated as net income divided by total owners’ equity. Net
income/total owner’s equity.
1. Earning per share: profitability ratio: net income/number of common shares outstanding. .
this determines size of dividend a company can pay back shareholder. Higher ratio=stock
value increase=investor know firm can affor to pay dividend.
2. Part 2: managing marketing:
Markets Segmentation and Market
Research 20131204 9:05 PM
What is marketing?
Marketing: planning and executing the development, pricing, promotion, and distribution of dea,s goods,
and services to create exchanges that satisfy both buyers/sellers objectives.
Marketing concept: idea that the whole firm is directed toward serving present and potential customers at
We look at: how marketing focus value/utility for consumer& merket environemnt & development of
marketing startegy & 4 market mix: devleoping, pricing, promoting, placing product
Providing value and satisfacation
Why do we buy one product and not the other? consumer buy products that offer best value when meetin
Value and benefits
Value: relative comparison of products benefit VS cost
Value = benefit/ cost. Benefit include function and emotional satisfication. Other satisfication: new product
better than existing one, adding extra hour, price reduction, informational promotion to explain how product
can be used in new ways.
Value and utility
Utlility: ability of a product to satisfy a human want/need. 4 kinds of utilty
Time utility: when company brings ornaments in christmas. Product available when consumer want them.
Place utility: department opens its annual christmas. Product available where customer can purchas them.
Ownership utility: when store sells ornament. Conveniently transfer ownership from store to customer.
Form utility: make product available in the first place; turn raw material into finished material.
Marketing determins timing, place, terms of sale, product features that provide utility and add value.
Goods, Services, and Ideas
Consumer goods: products purchased by individual for personal use
Industrial goods: products purchased by company to directly/indirectly produce other products
Services: intangible products (time/expertise/activity) purchased.
Promote ideas: media Part 2: managing marketing:
Markets Segmentation and Market
Research 20131204 9:05 PM
Strategy: the marketing mix
Marketing managers: managers responsible for planning and implementing all the marketing mix activites
that result in transfer of goods/services to customers.
Marketing plan: detailed strategy for gearing the marketing mix to meet consumer needs/wants
Marketing mix: product, price, place, promotion strategies used in marketing a product
1. Product: good, service, idea that satisfies buyers’ needs/demands. Mass customization allows markert to
provide product to satisfy specific need. Product differntiation: creation of product/product image that differs
enough from existing products to attract consumer.
2. Price.; part of marketing mix concerned with choosing the appropriate price for product to meet firm’s
profit objectives and buyers’ purchasing objectives. Low prices can lead to larger sale volume. High prices
limit market size but increase profit and implicate high quality attractin customers.
3. Placedistribution:part of marketing mix concerned with getting products from producer to buyer, including
physical transportation and choice of sales outlets. Other decisions like distribution decision, channels=sell
good to other companies that will distribut or directly said to retail.
4. Promotion: techniques for communicating information about products. Advertising, personal selling, sales
promotion, public relations.
4 P: product, price, place, promotion. = 4C customer solution, customer cost, customer convenience,
Target Marketing and market segmentation The 4 PsPrice 01/01/2001
Pricing objectives and tools
Pricing: deciding what the company will receive in exchange for its prodct.
Pricing objectives: goals that producers hope to attain in pricing products for sale
Pricing for ebusiness objectives. Lower internet prices. Ease in comparison shopping (pointclick shopping).
Market share objectives. Market share: a company’s percentage of total market share for a specific product.
Other pricing objecctives. Sometimes profit maximizing/market share is not not good objective. Survival is
company’s main objective (e.g cutting CD price because of high price/illegal download)
Price setting tools
Cost oriented pricing and break even analysis
Cost oriented pricing: pricing on firm’s desire to make profit and to cover production cost. Markup
percentage: (markeup/sales price). E.g $7 production/$15 selling. Or $7 selling/$